Here’s why Barclays, HSBC, and Lloyds share prices dipped

By:
on Jun 5, 2024
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  • UK banks dropped by over 1% on Wednesday, dragging the FTSE 100 index.
  • The drop happened after the latest UK services PMI data showed that inflation is falling.
  • There are signs that the Bank of England will slash interest rates this month.

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UK banks were among the worst performers in London on Wednesday. Lloyds Bank (LON: LLOY) share price dipped by over 1.1% while Barclays (LON: BARC) and HSBC (LON: HSBA) slipped by over 1%. Lloyds is down by almost 4% from its highest point this year while Barclays and HSBC have fallen by more than 4% from their year-to-date highs.

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These bank stocks dropped after a report showed that the UK’s inflation dropped in May. According to S&P Global, the input cost inflation faced by companies in the services sector grew at the slowest pace since February 2021.

That report came a few weeks after the UK published the latest Consumer Price Index (CPI) data. According to the Office of National Statistics (ONS), the headline CPI dropped to 2.3% in April, its lowest level since 2021. The core CPI also tumbled to 3.8% and analysts expect that the headline inflation figure will continue falling because of low energy costs.

The implication of all this is that the Bank of England (BoE) will start cutting interest rates as soon as this month. Some analysts believe that it will deliver a 25 basis point cut when it concludes its two-day meeting on June 20th.

Lloyds vs Barclays vs HSBC stocks

Banks like Lloyds, Barclays, and HSBC make most of their money in periods of high interest rates. Indeed, Lloyds generated over £13.7 billion in net interest income in 2023 while Barclays made over £12.7 billon. HSBC had over $35.8 billion in NII in 2023. These numbers were so high because interest rates in the UK and other countries have remained at an elevated level since 2022.

Therefore, these banks will likely see weaker NII and profit growth when the Bank of England starts cutting rates. Still, some analysts expect the drop in NII will be gradual since interest rates will remain at an elevated level for longer. 

The other reason to be optimistic is that most UK banks are relatively undervalued and are returning billions of dollars to investors. Lloyds Bank has a price-to-book ratio of 0.73 while Barclays and HSBC have 0.47 and 0.8, respectively. In contrast, the likes of JPMorgan, Unicredit, and Goldman Sachs have a multiple of over 1.

These banks are also great providers of income. Lloyds has an annual dividend yield of about 5% while Barclays and HSBC yield 3.7% and 7.13%. Therefore, there is a likelihood that their stocks will continue rising in the coming weeks.

At the same time, HSBC could benefit from its exposure to the Chinese market, which is showing signs of bottoming. The services and manufacturing PMI numbers released this week showed that China’s economy is recovering. 

Barclays HSBC Lloyds Bank Economic Finance & Banking Inflation Stock Market